The Triumph of Hope...
Craig Conway departs after a quarter that far exceeded most people's expectations, including mine. CEOs take notice.
Last Friday, PeopleSoft held a hurried conference call to announce a quarter so successful that it made most analysts (including this one) look ridiculous. Oh, by the way, also to announce that the CEO who produced this success had been fired.
Longtime readers of these Short Takes know that I was no fan of Craig
Conway's rhetoric, of his leadership style, or of his judgement about the business.
But I have said in the past and continue to believe that he led a remarkable
turnaround at PeopleSoft, taking a company that was sinking and turning it
into a leader.
He did this by infusing a new urgency and energy into the company and by
turning it into a company that knew how to present itself and how to sell.
These are considerable accomplishments, and for these accomplishments,
I salute you, Craig.
That said, let us turn to what the move means. There seem to be
three issues: the numbers, the new leadership, and what happens relative
to the Oracle bid. The prevailing wisdom, from what I can tell, is that
the numbers reflect a sea change in the software market and that the change in leadership
is an attempt to get a better price from Oracle. This seems to me to be largely wrong.
The Numbers
Whst can we make of this blowout quarter? Well, it is absolutely
clear that the PeopleSoft family of products is so attractive to some buyers that
they are willing to run considerable personal risk in order to buy the package.
If you are a CIO,
you make a major buy from PeopleSoft, and Larry buys PeopleSoft
and dismembers it, you are going to lose your job. Even knowing this,
many CIOs said last quarter, "I'll buy, anyway."
It is also clear that sales execution matters. No one makes a
decision like this without considerable help and reassurance, which
the PeopleSoft sales force was able to provide.
I don't fully understand why sales execution at PeopleSoft
became so much more effective this quarter,
but I don't believe that the sales improvement was due simply to a warmup
in the overall software market. When
Lawson can have a terrible quarter, Siebel a mediocre one, and PeopleSoft a brilliant one,
market dynamics can't be the primary explanation of PeopleSoft's success.
I do believe that this quarter, unlike last quarter, saw a lot of
bargain hunting and pipeline scouring, possibly sparked by the customers
themselves. People who had decided to buy anyway
realized that if they bought before the end of September,
they were going to get an awfully good price. Evidently, a lot of people wanted
to get a good deal.
In many cases, I am sure, customers drove a hard discount on the up-front
license fee. But I believe that PeopleSoft,
ordinarily a company that holds fast on maintenance, was
also willing to discount maintenance fees and to offer caps on maintenance fee increases.
Obviously, the more discounting there was, the lower the
long-term value of the license sales and the
less valid, for instance, year on year comparisons of license revenue.
The fact that these discounts and caps
are not typically reported
by any software company is, of course, worth noting, but
the subject of another Short Take.
Leadership
A "newly reenergized" Dave Duffield will take over the helm; Kevin Parker and Phil Wilmington will become co-presidents, and Aneel Bhusri will provide some technology direction from the vice-chairman's seat.
"Dave Duffield. Back. Wow. That's great," is the reaction that the company is hoping for from customers and analysts, and I think they've read the mood right. Even this old codger felt a tiny upsurge of an emotion that might have been called elation in someone less battered and cynical.
Why? Well, Dave is liked, respected, and even revered by people who remember the
simplicity, decency, and respect for others that he projected when he was in charge
of PeopleSoft. They hope that these personal qualities
extend to the company that he is in charge of. I don't know for sure that this
actually happens. For all I know, the person who gave huge amounts of money to a
fund for homeless animals after he left PeopleSoft and then adopted six children
in his sixties is actually a remorseless tyrant in his work life. But I kind
of doubt it. What I and others hope for
is that the shift toward an Oracle-like culture under Conway will be reversed under Duffield, and the old, people-friendly PeopleSoft will start coming back.
Of course, we should all remember and remember clearly that this old, people-friendly Peoplesoft had way too many people working for it who did way too little. When Conway replaced Duffield, he cut and cut and cut, and the end result was that PeopleSoft sold more, produced more product,
made better technology decisions, and gained back the respect of the financial markets.
When you ask people what was different about the Conway regime (and I did),
and you put the answers together, it was difficult to avoid the conclusion that under
Duffield, the main things leading PeopleSoft
toward the proverbial tank were the laziness, incompetence,
stupidity, arrogance, and intense interest in the rate at which their options were vested
of a large number of employees.
It was a decent, people-oriented company, in other words, but its management
wasn't very good.
A company with the spirit of the old PeopleSoft and the execution of the
new would be a company worth following. But you have to remember that Dave
Duffield produced the first, but not the second.
Can Dave learn from his mistakes, if any? (Remember that during
the dot-com era, all the ERP companies lost a lot of talent and had
severe management problems, so you can't just blame it on Dave.)
Well, one way of figuring out an answer is
to look at what happened when other software company
founders came back to their companies in a blaze of glory,
hoping to pull them out of their parlous state.
Alas, the track record is not good. The Roger Coveys
and Ed McVaneys of the world were cheered when they came back.
(I was doing some of the cheering.) These leaders hated what had been
done to "their" company in their absence, and they immediately set
about correcting the errors of the past. They were sure
that they had the solution.
But they were wrong. They misjudged the situation
and, alas, all their old faults as leaders re-emerged.
I've always believed
that a few years at high elevations can really
clean you up. But the record with Covey and McVaney does not bear this out.
Dr. Johnson says that a second marriage is "the triumph of hope
over experience." I hate to think what he would say about a re-marriage.
One exceedingly interesting and suggestive side note
is the sudden elevation of Aneel Bhusri. Aneel has been occupying
himself as a venture capitalist in the years since he left
PeopleSoft. One can guess from the subtext of the announcement
that he feels that not enough of the new, slick technologies that
he's watching are making their way into the PeopleSoft product. Now
he's back to provide a new technology direction.
When Bhusri was at PeopleSoft, he showed great imagination when
it came to technology, but the ideas he propounded then have mostly turned
out to be impractical. Someone like him is likely to be impatient with
a PeopleSoft that is spending a huge amount of its development dollars on
making existing applications more usable.
I hope he restrains his impatience.
In an era of low innovation, PeopleSoft is certainly
on the stodgy side; far from embracing the notion of
composite applications, they scarcely seem to know what they are.
But there are so many deep technical problems with web services
and composite applicatons, so much hot air, and so few successes,
that being slow in this area may actually be the practical thing.
And Oracle?
The prevailing wisdom is that PeopleSoft got rid of Conway so
that it could negotiate the best possible price for the company.
I don't see it. The Dave Duffield I saw in years past isn't going to leave his six
new children behind in Tahoe, raise the hopes of his old
constituency, and then sell them out, just to get an extra
20% for his holdings.
I think the story is much simpler. The institutional investors who
still need to tender their stock were likely to do so if they felt
that PeopleSoft was a damaged company, staggering
under the blows from Oracle. But if they
felt that the current management will do more with this asset than
Oracle's management, then they would see no reason to tender.
If PeopleSoft's
board is to be believed, Conway was no longer capable of persuading
these investors that his management would be better than Larry's.
So they needed somebody else to make the case.
Who better than Duffield?
Here's what I imagine him saying. "PeopleSoft
is a great company with great customers. Conway did a lot to improve
effectiveness, but he brought too much of the Oracle culture in,
and his management style was 'Napoleonic,' (as one highly disaffected
person put it to me recently). Correct those things, and PeopleSoft
will be back on course."
A good argument and, presented by Duffield, very persuasive.
Of course, you're more likely to be persuaded if your memory
is short or if you have more faith in the ability of human nature
to better itself than I do.
Even if the argument only succeeds in making shareholders put a higher
price on PeopleSoft, Duffield may still achieve his goal. At some price,
PeopleSoft will simply be too expensive to be worth buying. I don't
know whether that price is $26 or $28 or $40, but if Duffield can convince
his investors that he can make the company worth that price, he will
save his company.
If I were Oracle, I might even let him win. Running PeopleSoft,
with its multiple product lines, its heavy discounts, its unhappy
JDE customer base, and its recent history of overworking employees, but
still missing product due dates, cannot be an easy task and may well be
beyond anyone whose intuitions were trained in a different software era.
Maybe your best
bet is to sit back and wait Duffield out.
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